As Hawaii’s film industry thrives, some fear tax credit cap could put it in jeopardy

HONOLULU (HawaiiNewsNow) - “Jurassic World: Fallen Kingdom” has smashed box office records, surpassing the $1 billion mark worldwide within weeks of being released.

The newest film in the "Jurassic" franchise was partly filmed on Oahu, showcasing vast, sweeping views of the Koolau mountain range and lush jungle scenes in Heeia.

It's also the latest blockbuster to use Hawaii as its backdrop.

From classics like "South Pacific" and Elvis' "Blue Hawaii" to more recent favorites like "50 First Dates" and "Pirates of the Caribbean," the islands have long been a favorite for filmmakers looking for a tropical spot to shoot. But over the last decade, the state has attracted some of Hollywood's biggest productions, from "Jumanji: Welcome to the Jungle" to big budget TV series like "Hawaii Five-0" and "Magnum P.I."

And it isn't just Hawaii's beauty that's made the state so attractive to filmmakers.

Industry experts credit the state's film tax credit program, which refunds production companies a portion of what they spend to film in the islands, for wooing productions to the islands — and enticing productions to keep coming back.

And that's been a boon to the economy, they say, generating an estimated $320 million last year alone and providing hundreds of jobs.

"Hawaii's tax credit for film and motion pictures is really important because it is giving us a level playing field," said Georja Skinner, division chief of the state's Department of Business, Economic Development and Tourism Creative Industries Division.

"That is critical to the vibrancy of the destination, and let's face it, producers make decisions about the bottom line, about the money."

But film industry experts fear a big change coming to the tax credit in the new year could spur productions to look elsewhere, including Mexico, Australia or New Zealand.

On New Year's Day, the state will impose a new $35 million cap on the credits — more than $20 million less than what the state estimates the rebate will pay out a year after the expenditures are certified by the Hawaii Film Office.

Supporters of the cap argued it was necessary because there were questions around how much the state was really benefiting from film productions in Hawaii, many of which are made by mainland companies.

But those in the film industry — and those who benefit from it — worry the cap will turn filmmakers away.

Dean Des Jarlais, one of the owners of Hawaii Media Inc., an equipment rental company for film and TV productions, said in other states that have put in caps on the tax credits, "the business is fallen off the table."

Tax credits give Hawaii 'a level playing field'

Currently, the state's film tax credit stands at 20 percent for Oahu and 25 percent for neighbor islands.

But the ceiling — considered a compromise in a 2017 bill that extended the tax credit program to 2026 — would set a limit to the amount of money production companies would get back.

Last year, some 48 film and TV productions qualified for the state's film tax credit. The total estimated to be returned to qualifying productions: more than $55 million.

Industry experts argue other tax credit caps simply haven't worked.

They point to Louisiana, which imposed a $180 million ceiling in 2015. That led production companies to Georgia, a state without a ceiling.

That same year, the U.S. Bureau of Economic Analysis ranked California no. 1 for its film industry contributing the most to the economy, followed by New York. Hawaii was not on the top 10 list.

And in 2016, a state auditor's report criticized Hawaii's film tax credit program, saying it's difficult to assess the state's economic growth based on productions filming in the state.

"We found that insufficient administration of the film tax credit ... has likely increased the cost of the credit while overstating the possible economic benefits that it provides to the state," the report said. "For example, expenditures paid to out-of-state businesses and service providers do not infuse money into Hawaii's economy or provide income for local residents; they do not create local jobs."

But advocates say film productions create an enormous boost for the economy by reaching not just the creative industry, but also the visitor business industry. From hotels to food service, bringing a large-scale production to the islands affects a wide range of sectors, they say.

"While we can't track exactly the numbers in terms of tourism, you can track the number of rooms that are booked for any production that comes in," Skinner said, and that crews spend money on everything from rental cars to food to recreation. "So film is a huge influx of cash into all of those sectors."

Skinner added, "We continue tracking the local versus offshore spend and its economic impacts based on productions reports."

'It's going to drive business away'

Hawaii Media Inc., which started off as a mom-and-pop business in 1992, is one local company that has been benefiting tremendously from productions coming to the state.

Hawaii Media has become the state's premier rental equipment company, working on parts of almost every big picture that has come to Hawaii and competing with larger mainland-based companies.

Its biggest customer right now: "Hawaii Five-0." And "Magnum P.I." is in the works.

But owner Des Jarlais says the tax ceiling could change things.

"If 'Hawaii Five-0' and 'Magnum' each produce a full season, that alone would tap out the $35 million cap that's coming into place on January 1," Des Jarlais said. "We're hoping that the Legislature notices and the point is made by the producers' association that it's not a good idea. It's going to drive business away."

The state's Film Office is advocating for the elimination of the tax ceiling or raising it to at least $50 million.

And advocates are also making the case that these shows and movies alone are bringing more visitors to the state, feeding Hawaii's no. 1 industry: tourism.

"One of the most important things I think in any producer's decision to film here is the beauty of Hawaii's locations," Skinner said. "Of course, that's synonymous with what our visitors like as well."

More productions mean more visitors

One site she points specifically to is Kualoa Ranch, home to countless productions like "Wind Talkers," "LOST," and recently, "Jurassic World: Fallen Kingdom."

John Morgan, president and general manager of Kualoa Ranch, says he has seen a symbiotic relationship with more productions choosing to film onsite and business growth as a whole.

"We've been lucky to have a great relationship with Hollywood for a long time," Morgan said. "Hollywood's a business and they need to watch their costs, and if they can have five different sets in one base camp, it's efficient for them to be here."

As visitor counts have been going up, Morgan said, it helps finance different ventures and with job creation. This year alone, he's hoping to hire 20 to 30 additional employees.

"As a business, our revenue is up, our visitor counts are up," Morgan said.

Currently, Kualoa Ranch offers a variety of tours, everything from its "Jurassic Valley ATV tour" to a "Taste of Kualoa Farm Tour." But in 2015, Kualoa launched its "Hollywood Movie Sites Tour" — a 90-minute tour taking visitors to specific locations throughout Kaaawa Valley — due to popular demand and all the buzz on social media.

And all these tours, which start at roughly $46 a head, are not only fun for guests. They're also encouraging land preservation and showcasing the site's agriculture, nature and cultural components, Morgan said.

And he's hopeful that Hawaii's film industry will only continue to thrive — and drive more tourists his way.

Big Hollywood productions provide "a continuing exposure to Hawaii that feeds the visitor industry in general," Morgan said.

If the tax credit cap turns productions away, he said, a host of businesses could see big impacts.

"It's a choice. The Legislature can choose to continue to be competitive in that marketplace or decide that they don't want to be competitive in the marketplace," he said. "I certainly hope they choose to continue."

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